BEIJING, Nov. 12 /Xinhua-PRNewswire/ -- NetEase.com, Inc. , one of China's leading Internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2008.
William Ding, Chief Executive Officer and Director of NetEase commented, "We believe that the online gaming industry in China continues to enjoy healthy growth and shows no obvious signs of slowing. NetEase's online game business performed well in the third quarter due to the continued popularity of Fantasy Westward Journey (FWJ), a leading MMORPG in China. FWJ reached a new high of 2.3 million peak concurrent users in August as a result of the successful launch of a series of in-game marketing events during the summer holidays. Our game pipeline remains strong through the release of expansion packs of our existing flagship games and the development of new games. For example, we launched a new expansion pack for Tianxia II on September 24, 2008, and both the number of online players and consumption level have reached expectations and showed healthy growth since the commencement of its open beta testing on June 6, 2008. During the quarter, we commenced the closed beta testing of Heroes of Tang Dynasty, a history-based and adventure role-playing game, and the open beta testing of Legend of Westward Journey, an item-based version of our popular Westward Journey game series. We are also selectively considering licensing opportunities, such as the one we signed in the third quarter with Blizzard Entertainment, to further penetrate the online game market."
Mr. Ding continued, "The advertising revenue increase in the third quarter reflected the Company's on-going effort in strengthening the content of its portal. During the quarter, we made enhancements to our e-mail, blog and search products, and raised the overall users' experience to a new level to attract and engage new users. We plan to continue to improve our service offerings and content to further enhance our leadership position in the market."
Mr. Ding further remarked, "We believe that the outlook for the China Internet market still looks positive and is expected to show healthy growth for 2009, as a result of the rapid expansion of Internet users, the increasing popularity of e-commerce and the continued shift in advertising revenue to the Internet from traditional media advertising."
Third Quarter 2008 Financial Results Revenues
Total revenues for the third quarter of 2008 were RMB806.6 million (US$118.8 million), compared to RMB715.9 million (US$105.4 million) and RMB571.1 million (US$84.1 million) for the preceding quarter and the third quarter of 2007, respectively.
Revenues from online games were RMB675.1 million (US$99.4 million) for the third quarter of 2008, compared to RMB595.0 million (US$87.6 million) and RMB468.7 million (US$69.0 million) for the preceding quarter and the third quarter of 2007, respectively.
Revenues from advertising services were RMB113.0 million (US$16.6 million) for the third quarter of 2008, compared to RMB103.9 million (US$15.3 million) and RMB85.5 million (US$12.6 million) for the preceding quarter and the third quarter of 2007, respectively.
Revenues from wireless value-added services and others ("WVAS and others") were RMB18.5 million (US$2.7 million) for the third quarter of 2008, compared to RMB16.9 million (US$2.5 million) for each of the preceding quarter and the third quarter of 2007.
Gross Profit
Gross profit for the third quarter of 2008 was RMB631.3 million (US$93.0 million), compared to RMB722.8 million (US$106.5 million) and RMB441.9 million (US$65.1 million) for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter decrease was primarily attributable to the receipt of a business tax refund of RMB146.8 million (US$21.6 million) in June 2008 and increased content costs arising from Olympic-related price increases by content providers. The decrease was partially offset by increased online game and advertising services revenues in the current quarter. The year-over-year increase in gross profit was primarily driven by increased online game and advertising services revenues, partially offset by higher content costs and higher staff related costs resulting from increased headcount in the current quarter. The quarter-over-quarter increase in online game revenue in the third quarter of 2008 was primarily attributable to certain FWJ-related in-game marketing activities launched during the summer holidays of 2008. The year-over-year increase in online game revenue was primarily attributable to both FWJ-related marketing activities in 2008 and the successful launch of an expansion pack for FWJ in late September of 2007. The quarter-over-quarter and year-over-year increases in advertising revenue were primarily attributable to higher demand for advertising services during the third quarter of 2008.
Gross Profit Margin
Gross profit margin for the online game business for the third quarter of 2008 was 89.7%, compared to 91.2% and 89.4% for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter decrease in gross profit margin was primarily due to the business tax refund received in the preceding quarter as mentioned above. The year-over-year gross profit margin remained relatively stable.
Gross profit margin for the advertising business for the third quarter of 2008 was 26.9%, compared to 52.6% and 54.0% for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter and year-over- year decreases in gross profit margin were primarily due to increased content cost arising from Olympic-related price increases by content providers, partially offset by higher revenues.
Gross loss margin for the WVAS and others business for the third quarter of 2008 was 6.4%, compared to the gross profit margin of 28.8% and the gross loss margin of 33.3% for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter decrease in gross profit margin was primarily due to the business tax refund received in the preceding quarter as mentioned above. The year-over-year improvement in gross loss margin was primarily due to increased revenue from the sale of accessories and premium email services, lower business tax resulting from certain preferential business tax treatment in the PRC which commenced in the first quarter of 2008 and lower server depreciation expenses during the third quarter of 2008.
Operating Expenses
Total operating expenses for the third quarter of 2008 were RMB164.6 million (US$24.2 million), compared to RMB149.7 million (US$22.1 million) and RMB179.0 million (US$26.4 million) for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter increase in selling and marketing expenses was primarily driven by higher costs related to the marketing of FWJ and Tianxia II, higher marketing cost associated with the Beijing Olympics and higher staff-related costs resulting from increased headcount. The quarter-over-quarter increase in general and administrative expenses was primarily driven by a net increase in bad debt provision during the third quarter of 2008. Research and development expenses remained relatively stable quarter-over-quarter. The year-over-year decrease in operating expenses was primarily due to decreased selling and marketing expenses related to the launch of Westward Journey Online III in the third quarter of 2007, partially offset by increased research and development staff cost, resulting from increased headcount in the third quarter of 2008.
Net Profit
Net profit for the third quarter of 2008 totaled RMB313.3 million (US$46.1 million), compared to RMB438.2 million (US$64.5 million) and RMB260.2 million (US$38.3 million) for the preceding quarter and the third quarter of 2007, respectively. During the third quarter of 2008, the Company reported a net foreign exchange loss of RMB68.3 million (US$10.1 million) under Other, net, compared to RMB26.4 million (US$3.9 million) and RMB11.3 million (US$1.7 million) for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter and year-over-year increases in net foreign exchange loss in the current quarter were primarily attributable to the translation loss arising from the Company's US dollar- and Euro-denominated bank deposits and the fact that the Company fully redeemed its zero coupon subordinated convertible notes in July 2008 which had generated exchange gains in 2007 and 2008 prior to such redemption. NetEase reported both basic and diluted earnings per American depositary share ("ADS") of US$0.36 for the third quarter of 2008. The Company reported basic and diluted earnings per ADS of US$0.53 and US$0.50 and US$0.31 and US$0.29 for the preceding quarter and the third quarter of 2007, respectively.
Income Taxes
Effective as of January 1, 2008, the Chinese government adopted a new income tax law which unified the enterprise income tax payable by domestic and foreign-invested enterprises at 25%. Prior to the adoption of the new law, a number of the Company's subsidiaries and variable interest entities (VIEs) were entitled to various preferential tax treatments. The Company's subsidiaries and VIEs are at various stages of progress depending on the requirements of the different local tax authorities in applying for the New/High Technology Enterprises ("NHTEs") preferred tax treatment pursuant to the "Working Guidelines for Assessment of New/High Technology Enterprises" issued by the Chinese tax authorities on July 8, 2008. Accordingly, NetEase followed the applicable accounting standards and adopted the statutory rate of 25% in making tax provisions for the third quarter ended September 30, 2008, except for entities still enjoying unexpired tax holidays.
The tax charge for the third quarter of 2008 was RMB125.7 million (US$18.5 million), compared to the tax charge of RMB140.0 million (US$20.6 million) and the tax charge of RMB19.9 million (US$2.9 million) for the preceding quarter and the third quarter of 2007, respectively. The quarter-over-quarter decrease in tax charge was primarily attributable to an increased level of income recorded by the Company's subsidiaries and VIEs operating in China, which currently enjoy unexpired tax holidays. The year-over-year increase in tax charge was mainly due to the lower effective tax rate in effect under the pre-2008 tax laws. Under the pre-2008 tax laws, the Company's effective tax rate was 7.1% in the third quarter of 2007. The Company expects to reverse any excess tax provisions in subsequent periods if its subsidiaries and VIEs in China are granted the NHTE preferential tax status, which is expected to be partially offset by the anticipated reduction to deferred tax assets recorded at the lower NHTE preferred tax rates in future quarters.
Other Information
As of September 30, 2008, the Company's total cash and time deposit balance was RMB5.28 billion (US$777.5 million), compared to RMB4.16 billion (US$612.5 million) as of December 31, 2007. Cash flow generated from operating activities was approximately RMB495.5 million (US$73.0 million) for the third quarter of 2008, compared to RMB513.3 million (US$75.6 million) and RMB339.2 million (US$50.0 million) for the preceding quarter and the third quarter of 2007, respectively.
On September 12, 2008, the Company's Board authorized a new share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed one year. The authorization followed NetEase's completion of a 12-month share repurchase program previously announced on July 2, 2007. As of September 30, 2008, the Company has spent in aggregate a total purchase consideration of approximately US$63,000 (including transaction costs).
** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.7899 on September 30, 2008 in The City of New York for the cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2008, or at any other certain date. The percentages stated are calculated based on RMB.
Conference Call
NetEase's management team will host a conference call at 8:00 pm Eastern Time on Wednesday, November 12, 2008 (Beijing/Hong Kong Time: 9:00 am, Thursday, November 13, 2008). Chief Executive Officer William Ding, Acting Chief Financial Officer Onward Choi, and Co-Chief Operating Officer Michael Tong will be on the call to discuss the quarterly results and answer questions.
Interested parties may participate in the conference call by dialing 800- 218-9073 (international: 303-262-2053), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 800-405-2236 (international 303-590-3000), and entering passcode 11121416#. The replay will be available through November 26, 2008 Eastern Time.
This call is being webcast live and archived, and will be available for 12 months on NetEase's corporate web site at http://corp.netease.com/ , Investor Info: Earnings Call.
About NetEase
NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. NetEase's online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates. In particular, NetEase provides online game services to Internet users through the licensing or in-house development of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang.
NetEase also offers online advertising on its websites which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified ads services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the Web which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.
Other community services which the NetEase websites offer include instant messaging, online personal ads, matchmaking, alumni clubs and community forums. NetEase is also the largest provider of free e-mail services in China. Furthermore, the NetEase websites provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and domestic content providers.
This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward- looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that NetEase will not be successful in its product diversification efforts, including its focus on item- and fee-based games and exploration of strategic licensing opportunities; the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenue or cause revenue to decline; the risk that NetEase may not be able to continuously develop new and creative online services; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive approvals of the preferential tax treatments previously available to certain of its subsidiaries and VIEs in China), general competition and price pressures in the marketplace; the risk that security, reliability and confidentiality concerns may impede broad use of the Internet and e-commerce and other services; the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.
NETEASE.COM, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, September 30, 2007 2008 2008 RMB RMB USD (Note 1) Assets Current assets: Cash 2,482,820,821 985,038,655 145,074,103 Time deposits 1,675,813,944 4,293,828,441 632,384,636 Accounts receivable, net 166,727,514 218,099,421 32,121,154 Prepayments and other current assets 45,143,728 57,318,923 8,441,793 Deferred tax assets 65,787,113 29,846,484 4,395,718 Total current assets 4,436,293,120 5,584,131,924 822,417,404 Non-current assets: Non-current rental deposits 3,033,171 3,361,265 495,039 Property, equipment and software, net 183,471,666 217,705,609 32,063,154 Land use right, net 26,956,800 12,628,134 1,859,841 Prepayment for license right -- 27,463,600 4,044,772 Deferred tax assets 19,060,225 18,808,960 2,770,138 Other long-term assets 16,844,399 46,178,154 6,801,006 Total non-current assets 249,366,261 326,145,722 48,033,950 Total assets 4,685,659,381 5,910,277,646 870,451,354 Liabilities and Shareholders' Equity Current liabilities: Zero-coupon convertible subordinated notes due July 15, 2023 641,778,908 -- -- Accounts payable 89,143,868 160,056,476 23,572,729 Salary and welfare payables 68,653,742 53,761,507 7,917,864 Taxes payable 92,438,670 178,726,735 26,322,440 Deferred revenue 354,966,697 443,867,161 65,371,679 Accrued liabilities 29,844,067 55,883,575 8,230,397 Total current liabilities 1,276,825,952 892,295,454 131,415,109 Long-term payable: Other long-term payable 10,200,000 200,000 29,456 Total long-term payable 10,200,000 200,000 29,456 Total liabilities 1,287,025,952 892,495,454 131,444,565 Shareholders' equity 3,398,425,631 5,017,577,547 738,976,649 Minority interests 207,798 204,645 30,140 Total liabilities and shareholders' equity 4,685,659,381 5,910,277,646 870,451,354 The accompanying notes are an integral part of this press release. NETEASE.COM, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Quarter Ended September June September September 30, 2007 30, 2008 30, 2008 30, 2008 RMB RMB RMB USD (Note 1) Revenues: Online game services 468,651,024 595,039,049 675,127,723 99,431,173 Advertising services 85,478,302 103,937,354 113,005,479 16,643,173 Wireless value- added services and others 16,946,709 16,897,198 18,477,994 2,721,394 Total revenues 571,076,035 715,873,601 806,611,196 118,795,740 Business taxes (23,420,856) 137,081,472 (10,641,607) (1,567,270) Total net revenues 547,655,179 852,955,073 795,969,589 117,228,470 Total cost of revenues (105,710,714) (130,164,922) (164,696,351) (24,256,079) Gross profit 441,944,465 722,790,151 631,273,238 92,972,391 Operating expenses: Selling and marketing expenses (83,189,695) (53,403,127) (62,505,815) (9,205,705) General and administrative expenses (48,276,202) (44,127,629) (48,810,235) (7,188,653) Research and development expenses (47,515,112) (52,208,647) (53,322,288) (7,853,177) Total operating expenses (178,981,009) (149,739,403) (164,638,338) (24,247,535) Operating profit 262,963,456 573,050,748 466,634,900 68,724,856 Other income (expenses): Investment income 116,843 123,534 1,202,091 177,041 Interest income 29,194,435 31,439,986 39,704,670 5,847,607 Other, net (12,164,815) (26,439,269) (68,543,630) (10,094,940) Profit before tax 280,109,919 578,174,999 438,998,031 64,654,564 Income tax (19,946,757) (140,003,786) (125,687,666) (18,510,975) Profit after tax 260,163,162 438,171,213 313,310,365 46,143,589 Minority interests -- 117 2,235 329 Net profit 260,163,162 438,171,330 313,312,600 46,143,918 Earnings per share, basic 0.09 0.14 0.10 0.01 Earnings per ADS, basic 2.13 3.62 2.45 0.36 Earnings per share, diluted 0.08 0.14 0.10 0.01 Earnings per ADS, diluted 1.99 3.39 2.42 0.36 Weighted average number of ordinary shares outstanding, basic 3,053,681,518 3,027,874,505 3,199,978,057 3,199,978,057 Weighted average number of ADS outstanding, basic 122,147,261 121,114,980 127,999,122 127,999,122 Weighted average number of ordinary shares outstanding, diluted 3,261,550,487 3,233,701,752 3,240,451,297 3,240,451,297 Weighted average number of ADS outstanding, diluted 130,462,019 129,348,070 129,618,052 129,618,052 The accompanying notes are an integral part of this press release. NETEASE.COM, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended September June September September 30, 2007 30, 2008 30, 2008 30, 2008 RMB RMB RMB USD (Note 1) Cash flows from operating activities: Net profit 260,163,162 438,171,330 313,312,600 46,143,918 Adjustments to reconcile net profit to net cash provided by operating activities: Depreciation and amortization 24,019,586 23,183,012 22,478,837 3,310,629 Share-based compensation cost 26,072,433 20,836,332 16,117,448 2,373,739 Allowance/ (reversal) of provision for doubtful debts 1,067,169 (1,419,319) 9,458,347 1,393,002 (Gain)/Loss on disposal of property, equipment and software 696,754 (23,045) 581,041 85,574 Write-off of property, equipment and software -- 5,247 -- -- Unrealized exchange losses 11,262,944 26,574,778 68,605,629 10,104,071 Share of loss by minority interests -- (117) (2,235) (329) Net equity share of loss from an associated company 199,941 487,300 1,268,384 186,805 Others -- -- (7,292) (1,074) Changes in operating assets and liabilities: Accounts receivable (16,898,211) (77,960,545) (33,769,360) (4,973,469) Prepayments and other current assets 2,411,864 (3,312,399) (6,234,669) (918,228) Deferred tax assets 2,060,348 18,685,274 24,151,981 3,557,045 Deferred tax assets - non-current (5,356,345) (11,697) 347,875 51,234 Accounts payable (12,339,449) 16,206,953 57,055,571 8,403,006 Salary and welfare payables (10,472,826) 15,394,921 (12,943,811) (1,906,333) Taxes payable 9,217,774 18,745,532 (1,129,914) (166,411) Deferred revenue 39,167,706 10,391,562 37,929,704 5,586,195 Accrued liabilities 7,941,122 7,367,340 (1,709,862) (251,824) Net cash provided by operating activities 339,213,972 513,322,459 495,510,274 72,977,550 Cash flows from investing activities: Purchase of property, equipment and software (16,472,855) (20,258,398) (49,664,942) (7,314,532) Proceeds from sale of property, equipment and software 10,320 62,501 150,070 22,102 Incentive received on land use right -- 15,000,000 -- -- Prepayment for license right -- -- (27,463,600) (4,044,772) Investment in an associated company (2,500,000) -- (31,000,000) (4,565,605) Net cash received upon closure of VIE (1,217,831) -- -- -- Net change in time deposits with terms of three months (216,493,992) (309,877,981) (932,958,372) (137,403,846) Placement/ roll over of matured time deposits (201,035,000) (201,856,509) (1,290,712,014) (190,092,934) Uplift of matured time deposits 598,179,141 180,542,729 445,500,062 65,612,168 Net change in other assets (2,306) 81,783 668,111 98,398 Net cash provided by (used in) investing activities 160,467,477 (336,305,875) (1,885,480,685) (277,689,021) Cash flows from financing activities: Capital contribution form minority shareholders -- -- 2,710 399 Proceeds from employees exercising stock options 20,819,202 328,603 16,009,885 2,357,897 Repurchase of company shares (231,914,175) -- (424,438) (62,510) Payment of other long-term payable -- -- (10,000,000) (1,472,776) Net cash provided by (used in) financing activities (211,094,973) 328,603 5,588,157 823,010 Effect of exchange rate changes on cash held in foreign currencies (3,525,100) (39,668,730) (29,719,910) (4,377,076) Net increase (decrease) in cash 285,061,376 137,676,457 (1,414,102,164) (208,265,537) Cash, beginning of the quarter 920,360,140 2,261,464,362 2,399,140,819 353,339,640 Cash, end of the quarter 1,205,421,516 2,399,140,819 985,038,655 145,074,103 Supplemental disclosures of cash flow information: Cash paid for income tax, net of tax refund 19,457,537 117,313,562 83,231,216 12,258,092 Supplemental schedule of non-cash investing and financing activities: Treasury stock cancellation 237,971,707 76,433,652 -- -- Fixed asset purchases financed by accounts payable 11,313,407 10,529,644 24,305,244 3,579,617 Conversion of convertible notes to ordinary shares -- 168,377,187 433,664,691 63,869,084 The accompanying notes are an integral part of this press release. NETEASE.COM, INC. UNAUDITED SEGMENT INFORMATION Quarter Ended September June September September 30, 2007 30, 2008 30, 2008 30, 2008 RMB RMB RMB USD (Note 1) Revenues: Online game services 468,651,024 595,039,049 675,127,723 99,431,173 Advertising services 85,478,302 103,937,354 113,005,479 16,643,173 Wireless value-added services and others 16,946,709 16,897,198 18,477,994 2,721,394 Total revenues 571,076,035 715,873,601 806,611,196 118,795,740 Business taxes: Online game services (15,465,484) 133,155,985 (849,228) (125,072) Advertising services (7,265,655) (8,834,675) (9,605,466) (1,414,670) Wireless value-added services and others (689,717) 12,760,162 (186,913) (27,528) Total business taxes (23,420,856) 137,081,472 (10,641,607) (1,567,270) Net revenues: Online game services 453,185,540 728,195,034 674,278,495 99,306,101 Advertising services 78,212,647 95,102,679 103,400,013 15,228,503 Wireless value-added services and others 16,256,992 29,657,360 18,291,081 2,693,866 Total net revenues 547,655,179 852,955,073 795,969,589 117,228,470 Cost of revenues: Online game services (48,094,598) (63,985,689) (69,658,107) (10,259,077) Advertising services (35,946,007) (45,063,123) (75,569,816) (11,129,739) Wireless value-added services and others (21,670,109) (21,116,110) (19,468,428) (2,867,263) Total cost of revenues (105,710,714) (130,164,922) (164,696,351) (24,256,079) Gross profit (loss): Online game services 405,090,942 664,209,345 604,620,388 89,047,024 Advertising services 42,266,640 50,039,556 27,830,197 4,098,764 Wireless value-added services and others (5,413,117) 8,541,250 (1,177,347) (173,397) Total gross profit 441,944,465 722,790,151 631,273,238 92,972,391 Gross profit (loss) margin: Online game services 89.4% 91.2% 89.7% 89.7% Advertising services 54.0% 52.6% 26.9% 26.9% Wireless value-added services and others (33.3%) 28.8% (6.4%) (6.4%) The accompanying notes are an integral part of this press release. NETEASE.COM, INC. NOTES TO UNAUDITED FINANCIAL INFORMATION
Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.7899 on September 30, 2008 in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York.
Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of operations is set out as follows:
Quarter Ended
September June September September
30, 2007 30, 2008 30, 2008 30, 2008
RMB RMB RMB USD (Note 1)
Share-based compensation
cost included in:
Cost of revenue 4,110,297 3,396,419 3,840,525 565,623
Operating expenses
- Selling and marketing
expenses 3,716,654 2,675,811 2,010,771 296,141
- General and administrative
expenses 8,824,199 7,538,343 5,498,972 809,876
- Research and development
expenses 9,421,283 7,225,759 4,767,180 702,099
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